Middle Class Getting Priced Out of California But Not Midwest

Where Can The Middle Class Actually Afford To Buy
Homes?Â |Â Jed Kolko
Where can the middle class afford to buy a home today? Affordability has worsened in the past year,
as home prices have climbed faster than incomes and mortgage rates have risen. But compared with
the longer-term past, homeownership still looks relatively affordable: home prices are still
undervalued and mortgage rates remain near historic lows. In most U.S. markets, the majority of
homes for sale are within reach of the middle class, and buying is cheaper than renting in all of the
100 largest metros.
However, in many markets, especially along the coasts, homeownership is out of reach for the
middle class. Even having a college degree is no guarantee that homeownership is
https://www.scribd.com/doc/254746849/California-Housing-Market-Forecast-February-2015 within
reach in the priciest markets. There's no easy way to make housing more affordable, though new
construction can help.
As in our inaugural middle-class affordability report, we calculated the share of for-sale homes on
Trulia that are affordable to a middle-class household, based on whether the total monthly payment -
- mortgage, insurance, and property taxes -- was less than 31% of the metro area's median
household income. (See note below.) Because we define "middle class" separately for each metro
based on the local median household income, our affordability measure takes into account that a
middle-class Click Here income is higher in some markets than in others.
For instance, for a middle-class family in the Denver metro area, where median household income is
just under $62,500, homes priced under $325,000 are within reach based on the 31% guideline. Of
the homes listed for sale in Denver on May 6, 2014, 50% cost less than that -- which means that half
of Denver homes are within reach of the middle class.

Middle Class Getting Priced Out of California But Not Midwest
In 80 of the 100 largest U.S. metros, most of the homes for sale today are within reach of the middle
class. In the most affordable housing markets, more than 80% of homes are within reach, with Akron
topping the list at 86%. The 10 most affordable markets include eight in (or near) the Midwest, plus
the southern markets of Columbia, SC, and Little Rock, AR. Five of the top 10 are in Ohio.
Most Affordable Housing Markets for the Middle Class
#

U.S. Metro
% of for-sale homes affordable for middle class, May 2014
Median size of affordable for-sale homes, May 2014 (square feet)
1
Akron, OH
86%
1,350
88%
2
Toledo, OH
84%

1,350
87%
3
Dayton, OH
83%
1,350
89%
4
Gary, IN
83%
1,500
87%

5
Columbia, SC
82%
1,700
88%
6
Columbus, OH
81%
1,400
87%
7
Detroit, MI
81%

1,100
87%
8
Cleveland, OH
81%
1,350
85%
9
Little Rock, AR
81%
1,600
83%

10
Rochester, NY
81%
1,400
79%
Find out how affordable each of the 100 largest metros are for the Middle Class: Excel and PDF
Seven of the 10 least affordable markets are in California, along with New York, neighboring
Fairfield County, CT, and Honolulu. Only 14% of homes for sale in San Francisco are affordable to
the middle class, even though median household income is higher in San Francisco than almost
anywhere else in the country. In New York and in the coastal markets of southern California - Los
Angeles, Orange County, Ventura County, and San Diego - less than one-third of homes are within
reach of the middle class. Plus, in California especially, the share of homes within reach has fallen
over the past year, as prices in the West have rebounded sharply.
Least Affordable Housing Markets for the Middle Class
#
U.S. Metro
Median size of affordable for-sale homes, May 2014 (square feet)

1
San Francisco, CA
14%
1050
20%
2
Los Angeles, CA
23%
1200
31%
3
Orange County, CA

24%
1100
34%
4
New York, NY-NJ
25%
1000
28%
5
San Diego, CA
28%
1100

39%
6
Ventura County, CA
29%
1250
43%
7
San Jose, CA
34%
1150
42%
8
Fairfield County, CT

37%
1350
38%
9
Honolulu, HI
39%
750
47%
10
Oakland, CA
40%
1200

52%
Find out how affordable each of the 100 largest metros are for the Middle Class: Excel and PDF
Within the country's two largest metro areas, there are local sub-markets that are as or more
unaffordable as San Francisco. Within the Los Angeles metro area, just 13% of homes in the San
Gabriel Valley (the 626 area code footprint) are within reach, and just 15% of homes on the west
side (the 310 area code footprint). Within the New York metro area, only 12% of for-sale homes in
Brooklyn are within reach, but Manhattan is in a league by itself, with just a sliver -- 2.3% -- of for-
sale homes affordable to the middle class.
Housing Affordability in Los Angeles Metro Area
Area Code
% of homes for sale within reach of middle class, May 2014 (Trulia)
Pasadena / San Gabriel Valley (626)
13%
Westside LA/ Beaches/ Coast (310/424)
15%
San Fernando Valley (818/747)
17%
Downtown LA (213)

19%
Orange County South (949)
19%
Long Beach (562)
23%
Central LA (323)
25%
Orange County North (714/657)
27%
Riverside (951)
34%
San Bernardino (909)
40%

Check out affordability for sub-markets in New York, Los Angeles, Chicago, Washington DC, and San
Francisco here.
In Most Markets, Homeownership is Out of Reach for the Less Educated
Even within a local market, affordability depends on where you land in the income distribution; and
how much education you have often shapes your income today and in the future. In fact, your
education level can matter as much as where you live when it comes to whether you can afford to
buy a home.
Nationally, if you randomly picked 10 adults, 4 would have a high school degree or less, 3 would
have completed some college or an associate's degree, 2 would have completed a bachelor's degree,
and 1 would have a graduate degree, give or take a few percentage points (see note below).
Household income is strongly correlated with education. Median household income is $33,500 for
households headed by someone with a high school degree or less, $49,300 with some college or an
associate's degree, $77,500 with a bachelor's degree, and $100,000 with a graduate degree. (Note:
this data reflects the income of the household overall, based on the educational attainment of the
head of household.)
The table below shows affordability for selected housing markets based on the actual median
incomes within each metro at different levels of education. Take the Washington, D.C., metro area as
an example: for a high-school-or-less household, just 23% of homes for sale are affordable, compared
with 75% for a bachelor's-degree household and 83% for a graduate-degree household.
If the head of a household has a high school degree or less, fewer than 10% of homes for sale are
affordable in San Francisco, New York, and Los Angeles. In 72 of the 100 largest metros, fewer than
half of homes for sale are within reach of people with a high school degree or less, including
relatively affordable markets like Phoenix, Chicago, and Atlanta. In the most expensive markets,
many homes are out of reach of households with college or graduate degrees. San Francisco, as
always, is the extreme: only 44% of homes for sale are within reach of graduate-degree households.
U.S. Metro
Overall metro median income
High-school or less
Some college or 2-year degree

Bachelor's degree
Graduate degree
San Francisco, CA
14%
3%
7%
25%
44%
New York, NY-NJ
25%

7%
21%
52%
65%
Los Angeles, CA
23%
9%
22%
49%
68%

Seattle, WA
53%
21%
42%
67%
79%
Washington, DC-VA-MD-WV
62%
23%
47%

75%
83%
Houston, TX
49%
26%
47%
74%
84%
Phoenix, AZ
63%

35%
61%
79%
87%
Chicago, IL
70%
39%
63%
85%
90%

Atlanta, GA
72%
49%
64%
86%
90%
Cleveland, OH
81%
63%
80%

91%
95%
Selected large metros. Affordability by educational attainment for all 100 large metros can be
downloaded here.
Why More Homes Aren't Built in Expensive Markets
Why are some metros more affordable than others? Flashback to Econ 101 - it's supply and demand.
Demand is how much people are able and willing to pay to live in a place, which depends on how
desirable and economically productive a place is. Some factors that affect demand - like a good
climate or an educated workforce - change very slowly over time, while others - like an oil boom or
dot-com bust - can change more swiftly.
Housing demand alone does not determine home prices. Supply is crucial, too. Home prices depend
on whether construction keeps up with demand. For the same increase in housing demand, a market
that builds less housing will see bigger price increases than one that builds more housing. Although
the real world is a lot more complicated than that, a simple scatterplot makes the point: expensive
markets build little housing. Every metro where the median price per foot is over $200 has added
housing at an annual rate of no more than 10 new units per 1,000 existing units since 1990.
Conversely, no metro that builds a lot of housing is expensive. Of course, many markets are
inexpensive and build little, like Detroit, Cleveland, St. Louis, and the upstate New York metros of
Buffalo, Rochester, and Syracuse - all of which have faced long-term economic challenges and
relatively weak housing demand.

For America's most expensive housing markets to become significantly more affordable, they would
need either a spectacular drop in demand - a local economic collapse, for example - or a dramatic
increase in housing supply. But in these markets, geography and regulations limit new construction.
Coastal California, south Florida, and parts of the Northeast are hemmed in by oceans, mountains,
or both - unlike large swathes of the Midwest and South. Furthermore, regulations like zoning,
onerous approval processes, and high permitting costs hold back construction. It's complicated to
tease out whether geography or regulations matter more because geographically hemmed-in areas
also tend to be more heavily regulated (see this academic paper for evidence). But short of filling in
San Francisco Bay or paving over the Everglades, local governments have a lot more control over
regulation than geography. So why don't expensive cities relax regulations in order to build more?
The politics of building new housing in expensive markets are tricky. While expanding the housing
supply would improve affordability, new construction can change the character of a place in many
ways: more congestion; a different skyline; an influx of new residents who are richer, poorer, darker,
or whiter than current residents; as well the inconvenience during construction itself. Furthermore,
not everyone wants to improve affordability. Another name for "housing costs" is "property values,"
and current homeowners and landlords want property values to stay high. The beneficiaries of
improved affordability are renters (though less so if they're already protected by rent regulations);
people who are priced out of expensive markets and therefore live elsewhere; and future
generations - who usually have less political power and influence than homeowners and landlords.
Plus, even people who might benefit from greater affordability might care more about preserving the
character of their neighborhood.

In all, today's unaffordable markets are likely to stay unaffordable. A collapse in demand is nothing
to wish for; geographic constraints are nearly impossible to change; and strong political forces make
building regulations difficult to relax. Although some expensive metros, like San Francisco, New
York, and Boston, are currently building more housing than in the recent past, and New York's new
mayor is pushing to increase construction further, it would take many years of construction activity
at much higher than historic levels to make today's least affordable metros more within reach of the
middle class.
Note: The total monthly payment includes the mortgage payment assuming a 4.4% 30-year fixed rate
mortgage (3.6% for the 2013 comparison) with 20% down, property taxes for that metro, and
insurance. We chose 31% of income as the affordability cutoff to be consistent with government
guidelines for affordability; both the Federal Housing Administration and the Home Affordable
Modification Program use 31% of pre-tax income going toward monthly housing payments for
assessing whether a home is within reach for a borrower. Note that the 43% debt-to-income rule for
Qualified Mortgages is for total debt, not housing debt. Metro median income is from the 2012
American Community Survey, multiplied by 2013 year-over-year wage growth from the Bureau of
Labor Statistics. We looked at all for-sale homes on Trulia on May 6, 2014, and May 6, 2013. Local
building-permit data are from the U.S. Census Bureau.
Close
Building permits/total housing units: 0.15%
Decline in building permits 2005-2011: -60.29% (11th smallest)
Building permits 2011 YTD: 8,136
Total housing units: 5,567,315
At the beginning of 2011, a number of new, restrictive building codes went into effect in
Pennsylvania. This caused a rush among builders to secure permits, with housing permits increasing
a massive 117.8% between November and December 2010, according to the Philadelphia Federal
Reserve. The state's housing market has not been doing well since. Permits issued from January to
June 2011 fell 16% compared to the same six-month period one year earlier. The national average
for permits issued in the first six months of 2011 compared to the first six months of 2011 is a
decrease of 6%.
Read more at 24/7 Wall St.
Decline in building permits 2005-2011:

Building permits 2011 YTD: -77.09% (11th largest)
Total housing units: 721,830
Maine has seen one of the largest decreases in building permits in the past six years. This is
unsurprising as home sales in general declined substantially. Home sales for June 2011 decreased
21.39% from June 2010, according to the Maine Association of Realtors. The state's median sales
price also decreased 1.37% over this same period. According to numbers from the Census Bureau,
Maine has the highest vacancy rate in the country, reaching 22.8% in 2010. However, this number
also includes empty vacation houses.
Decline in building permits 2005-2011: -61.85% (12th smallest)
New York State's housing market is among the largest in the country. As a result, the number of
permits is minuscule when compared to the state's total housing units. Although new home sales
decreased in the first half of 2011 from 2010, the number of permits actually increased slightly
during that period, from 10,189 in 2010. This is significantly lower than 2005's 28,921 permits.
Decline in building permits 2005-2011: 69.55% (24th smallest)
Despite having a healthy economy compared to much of the country, Massachusetts' housing market

is beginning to face serious troubles. In June 2011, sales of single-family homes in the state
decreased 23.5% from the year before, reaching the lowest level since 1991, according to the
Warren Group, a New England real estate research firm. With so few home sales, it follows that not
many new homes are being built. Year-to-date, building permits for 2011 are about one quarter of
what they were in 2005.
Decline in building permits 2005-2011: -76.61% (12th largest)
Ohio has suffered, and continues to suffer, greatly from the housing crisis. Over 8,000 homes were
foreclosed in July 2011, the ninth-largest amount in the country, according to real estate company
RealtyTrac. With such a high foreclosure rate, currently at one in every 608 housing units, housing is
already too inexpensive for people to want to build. Ohio has therefore had one of the greatest
decreases in building permits in the country over the past six years. Median existing home sales are
also down in many areas of the state, according to data from the National Association of Realtors. In
Toledo, prices are down 17% from one year ago, the third largest rate in the country.
Connecticut has had one of the greatest declines in the number of new building permits in the
country. This trend saw a small turnaround in June -- the first monthly year-over-year gain in 2011 in
new construction, according to the Connecticut Department of Economic and Community
Development. However, the Hartford Courant reports that for "the first six months of the year,
residential construction was down 30 percent compared with the same period in 2010." June was

also the first increase in home construction in five years.
Building permits/total housing units: 0.09
Michigan is one of the states that has suffered the most from the recession. The state's
unemployment rate peaked around 15% in 2010. It is now at 10.5%, which is still significantly higher
than the national average of 9.2%. The state has a vacancy rate of just under 15%, which is one of
the highest in the country. New building permits have also decreased by over 80% since 2005, also
one of the highest rates in Encinitas real estate broker the country. The state may now be more
focused on tearing down old buildings than building new ones.
Decline in building permits 2005-2011: -84.18% (3rd largest)
Illinois has seen an almost 85% decrease in new housing permits since 2005. This is the third largest
drop in the country. There are a number of initiatives being made across the state to improve the
housing markets. In Chicago, for instance, Mayor Emanuel has made a number of changes to
increase the speed with which building permits are issued. Additionally, a "Micro-Market Recovery
Program" has been introduced to slow the city's foreclosure rate.

Building permits 2011 YTD: 774
West Virginia's decline in building permits has slowed to almost a crawl. In the first six months of
2005 the state issued almost 3,000 permits. For the first half of 2011, that amount decreased to 774.
If every permit were to result in a new housing structure, those homes would represent less than
0.1% of the total housing units in the state. Despite all this, construction is one area that is
benefiting the state. According to the organization WorkForce West Virginia, 700 construction jobs
were added in-state this past July -- the largest amount of jobs added in the private sector.
Decline in building permits 2005-2011: -70.81% (22nd largest)
Building permits 2011 YTD: 312
Foreclosure filings increased 4% in Rhode Island from the first six months of 2010 to the first six
months of 2011, according to RealtyTrac. Foreclosures dropped by 29% for that same period on the
national level. Rhode Island home sales decreased 20% from one year ago in the second-quarter,
according to the Rhode Island Association of Realtors. Additionally, median home prices have
dropped 2%. These numbers indicate that Rhode Island's housing market is not recovering at the
same pace as the majority of the country. For this first six months of this year, the state has issued a
mere 312 building permits, the smallest number in the country.
http://www.huffingtonpost.com/jed-kolko/where-can-the-middle-clas_b_5326891.html

Middle Class Getting Priced Out of California But Not Midwest

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